Government spending continued unabated in 2023

Despite the financial future of South Africa looking increasingly bleak, government spending continued unabated in 2023.

Government’s spending has been exceeding its revenue since the global financial crisis of 2008, while the country’s rising annual budget deficit has reached the stage where government will have to borrow an average of R553 billion per year over the medium term to keep going.

This means that the country’s gross debt will increase from R4.8 trillion in the current financial year to R5.2 trillion in the next financial year and exceed R6 trillion by 2025/26, according to finance minister Enoch Godongwana’s 2023 Medium Term Budget Policy Statement (MTBPS) in November.

He said that Treasury expects gross government debt to reach 77% of gross domestic product (GDP) by 25/26. “Over the next three years, debt-service cost as a share of revenue will increase from 20.7% in 2023/24 to 22.1 per cent in 2026/27. The interest on this debt, for next year alone, amounts to around R385.9 billion,” he said.

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Over the Medium-Term Expenditure Framework, interest costs amount to R1.3 trillion which is more than government spends on police, education or health.

Government spending reached R1.04 trillion in the year ending in September, an increase of nearly R100 billion compared to the previous year, while year-to-date expenditure surpassed revenue by more than R250 billion.

With all this spending, it is concerning that government anticipates revenue collection to fall short of the estimates of the 2023 budget, with a projected deficit of R56.8 billion for the current financial year.

Decline in tax revenue collection and overspending

2023 saw a sharp decline in corporate tax collection, especially from the mining sector, while the public sector payroll, Eskom’s debt, the Transnet crisis and social welfare grants made major dents in the government purse.

This came after government benefited from increased revenue thanks to high commodity prices in recent years but the end of the high commodity price cycle and inefficiency of Transnet’s freight rail affected the profitability of mining companies.

In addition, state-owned enterprises (SOEs) cost government R398 billion in taxpayer money to bail them out since 2013/2014. Eskom received 55% of this amount. Transnet recently got a R47 billion guarantee facility from Treasury, while the Post Office, which is already in business rescue, got a bail out of R2.4 billion in the Budget, but needs an additional R3.8 billion for its turnaround.

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Government departments also racked up more than R18.5 billion in overspending. According to Treasury, the overspending occurred in 13 different government departments and entities over the years, with five entities still being processed.

The Department of Social Development topped the list by overspending by R15.1 billion due to President Cyril Ramaphosa’s declaration of a national state of disaster during to the Covid-19 pandemic.

The Department of Transport overspent by R1.34 billion between 2013 and 2016 on the implementation of the eNatis system and the Department of Public Service and Administration overspent R8.8 million.

Other overspending included R120 million for Statistics SA due to previous budget cuts and R3.7 million by the Government Communication and Information System for the state funeral of former president Nelson Mandela in 2013.

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Economist worries about government spending

Professor Bonke Dumisa, an independent economic analyst, says it is worrying that government spends more than R366 billion per year, or over R1 billion per day, or about 17 cents per R1 just on servicing the cost of government debt to pay the interest and related costs before paying the actual principal loan/debt.

Godongwana said in the MTBPS that government spending has been revised down by R21 billion, with further proposed reductions of R64 billion in 2024/2025 and R69 billion in 2025/2026. These adjustments will be partially offset by departments implementing the cost containment guidelines issued by Treasury as well as the implementation of control measures on payroll systems and the recommendations from the spending reviews conducted in the past two fiscal years.

Government plans to implement National Health Insurance (NHI) and the NHI Bill is on Ramaphosa’s table to be signed after it was passed without any changes by parliament and the National Council of Provinces.